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southeast asia: growing milling industry relies on wheat imports | 2019-08-12 | world grain

southeast asia: growing milling industry relies on wheat imports | 2019-08-12 | world grain

Wheat production in Southeast Asia is small, but the grain plays an increasing part in diets in the region, which is also home to a large milling sector, including one of the biggest milling companies in the world, Indonesian-based P.T. Bogasari.

The wheat production of the countries of Southeast Asia is too small to register on the IGCs breakdown. They do produce corn and the IGC forecast their 2019-20 crops at 13.3 million tonnes for Indonesia, 8.3 million for the Philippines, 5.2 million for Thailand and 4.7 million for Vietnam. Thailand is also forecast to produce 100,000 tonnes of sorghum.

The lack of home-grown grains makes the region a big importer. The IGC forecast total 2019-20 imports at 11.7 million tonnes for Indonesia, 5.7 million for Malaysia, 7.3 million for the Philippines, 3.9 million for Thailand and 14.8 million for Vietnam. Of those totals, wheat accounts for 11.4 million tonnes for Indonesia, 1.8 million for Malaysia, 6.8 million for the Philippines, 3.2 million for Thailand and 4.4 million for Vietnam. Malaysia imports 3.9 million tonnes of maize, while Vietnam imports 10.3 million tonnes.

Currently, 28 flour mills operate under 23 companies, with a total installed capacity of 11.8 million tonnes (wheat equivalent) per annum, an increase from 11.5 million tonnes in 2017-18, the report said. Running capacity of the mills reached 80% in 2017-18, an increase from 70% in 2016-17.

Indonesias imports of wheat for food are inflated by a ban on imports of corn for food. The country has some of the highest corn prices in the world, so feed mills are forced to source other commodities for feed ingredients.

Expansion in the flour milling sector, leading to strong competition also has meant a rise in imports of wheat from the Black Sea. According to the attach, Australia, with 31%, and Ukraine, with 21%, dominate the market. Canada has a market share of 16% and Russia has 14%.

The growth of Ukrainian wheat imports, along with the sharp increase in Russian imports, has pushed U.S. wheat to fifth largest supplier, although overall market share has remained near 10%, the attach said. Australias market share is due to the growing noodle industrys preference for Australian standard white wheat, competitive pricing, and Australias close proximity.

The attach quotes millers as reporting that in addition to competitive prices, Ukrainian wheat quality has significantly improved in recent years, allowing for higher rates of blending. Similarly, Russian wheat exports to Indonesia increased by 579% in 2017. These increases have come at the expense of Australian wheat, which, in addition to price, has had inconsistent supply due to weather related problems.

P.T. Bogasari boasts the worlds largest flour mill in Jakarta. The mill, which has 15 milling lines, recently expanded its I and J milling lines, with production capacity in each line increasing from 800 tonnes (wheat equivalent) per day to 1,200 tonnes per day. Capacity in the H mill is in the process of being expanded from 800 to 1,200 tonnes, with the expansion expected to be completed in the third quarter of 2019. When the final piece of equipment is installed, the plants daily capacity will reach 11,650 tonnes and its yearly production capacity will be more than 4 million tonnes.

Relatively stable macro-economic conditions have allowed middle and upper-middle income consumers to diversify their diets to include more western-style foods like bread and pasta, the report said. Rather than eating rice three times daily, many Indonesians have switched to eating bread or noodles for breakfast. Restaurants and high-end bakeries are also driving demand for wheat-based food products, especially in major cities, including Jakarta, Surabaya, Medan and Bandung.

In addition to noodles, more high-end and artisan bakeries are coming online, driving the bakery industry, which already accounts for 20% of flour consumption, it said. The remaining 10% is consumed by household and commercial biscuit producers.

The country is a major importer of milling-quality wheat and the United States is its largest supplier, the attach explained. Rising incomes and a rapidly growing population have resulted in changing diets toward more wheat and protein.

This includes pan de sal and its derivatives (local salt bread consumed as a breakfast muffin), loaf bread, buns and rolls, cakes and pastries, and Chinese steamed buns, the attach said. The other half of milling wheat demand is for producing noodles, cookies and crackers, and pasta.

Low flour and bread prices, high rice prices, and shifting diets among the burgeoning middle class have kept per capita demand growing at an extraordinary rate. Consumption per person of wheat food has risen from 23.1 kilograms in 2014 to 33.7 in 2019.

The domestic flour milling industry is becoming more competitive, the attach said, noting that a new mill was commissioned in 2018-19. There are 21 flour mills with a total capacity over 5 million tonnes. Capacity utilization in 2018 was over 50%.

In Thailand wheat production is marginal in Thailand due to unfavorable climatic conditions, limited seed development, and unattractive returns compared to other field crops, according to an attach report dated March 14. It put total production of wheat in the country at between 300 and 400 tonnes on around 160 hectares.

Consumption of milling wheat was forecast at around 3 million tonnes in 2018-19, with milling wheat accounting for around 45% of all wheat consumption. Sixty percent to 70% of the milling wheat is used for bakery and instant noodle production. The attach said two new wheat flour mills with a capacity of around 300,000 tonnes began operating in 2018-19, bringing total wheat flour production capacity to around 2.5 million tonnes a year.

U.S. milling wheat will likely maintain its dominant market share, accounting for approximately 60% of total milling wheat imports due to growing demand for high-protein wheat from bakeries, the report said.

Vietnam does not produce wheat, according to a report dated April 8. The country has quarantine inspections that make it difficult to bring in high quality wheat varieties. The attach explained the previous year, in a report dated April 12, 2018, that increased consumption for milling wheat is driven by the on-going demand for wheat-based products in the fast food industry.

In large cities, people consume many wheat-based foods, and in recent years the demand for bread/baguette and other baked goods and wheat-based foods has risen, the report said. The changes reflect the increasing pace of urbanization and increasing familiarity of consumers with convenience foods.

Consumption of milling wheat is small, but growing steadily, which means increased demand for U.S. wheat. Demand for milling wheat is around 2 million tonnes a year. Milling capacity is around 3.4 million tonnes a year.

This leads to strong competition in the wheat milling sector and also demonstrates industry is anticipating future wheat consumption growth, the report said. The Vietnam milling industry is expected to not only supply its milled flour domestically, but also regionally to other countries in Southeast Asia.

According to the 2019 report on the sector in Vietnam, Australian wheat gets into the country duty free under the Australia-Vietnam Free Trade Agreement (FTA), while the Vietnam-Eurasia Economic Union (VN-EAEU) means there is no duty on wheat from Russia, Belarus, Kazakhstan, Armenia and Kyrgyzstan. Canadian wheat enters duty free under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

For Myanmar, also known as Burma, a report dated March 28 forecast increased wheat consumption in anticipation of renewed demand for snacks and baked goods derived from wheat flour, following flat years that followed a downturn in the economy in 2018.

As a result, some small bakeries and cafes have closed, as they cannot keep up with high space rental fees, high inflation, and low demand in 2018, the report said. Although there are small scale flour mills in central and upper Burma, the two biggest wheat mills in Myanmar are the U Kyu Family Group, holding about 50% to 55% of the flour market, and Capital Diamond Star capturing about 30% to 35% of the flour market.

The flour milling sector is dominated by four major players. The biggest are Malayan Flour Mills (MFM) and Federal Flour Mills (FFM) with a market share of around 57%. FFM has around 32% of the market from four mills, with a capacity of 2,550 tonnes a day. MFM has a capacity of 2,520 tonnes a day from two mills. Interflour has four mills and a capacity of 1,690 tonnes a day, while another mill belongs to Kuantan Flour.

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